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Apple and publishers offer to settle an e-books antitrust case in Europe

September 20, 2012 12:08 PM

The European Commission yesterday released the settlement offers of Apple Inc. and four international booksellers against which the commission brought an antitrust suit last December. It is inviting interested parties to publicly comment on the documents for one month before making them legally binding.

The executive body of the European Union charged Apple Inc. and five international booksellers—Simon & Schuster; HarperCollins Publishers; Hachette Livre, a unit of French media group Lagardère; Verlagsgruppe Georg Von Holtzbrinck GmbH publishing group in Germany; and The Penguin Group Inc., a unit of Pearson PLC—with making anti-competitive agreements about the sale of e-books. The proposed settlement covers the 27 member states of the European Union together with Iceland, Liechtenstein and Norway.

The collusions were devised to shift price setting to an agency model, the commission says. That model allows publishers to set the retail prices of e-books and pay retailers a commission for each sale, rather than selling e-books to retailers wholesale and letting them set their own store prices. This may have raised the retail prices of e-books in the region or prevented lower prices, the commission says. In particular, the commission charges that Apple and the publishers made pricing agreements using a price-matching provision that meant no other retailer, such as Amazon Inc. or Barnes & Noble Inc., would be allowed to sell books for prices lower than Apple’s.

In response, Apple and all publishers but Penguin submitted a settlement commitment to end the suit (the commission says it continues investigations against Penguin). Each of the proposed commitments include offers to end existing agency agreements with one another and promises to refrain from adopting any price matching clauses for five years. Additionally, if any of the publishers decide to make new agency-type agreements about price setting, retailers will remain free to set their own e-book prices for two years—essentially not honoring them—so long as the total value of the price difference doesn’t exceed their annual commissions from the publishers, the commission says.

The U.S. Department of Justice filed a similar lawsuit against Apple and six major publishers last year, but has reached settlements with only three publishers. It continues litigation against Apple, Penguin and Holtzbrinck, which operates as Macmillan in the United States.

“As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles,” says U.S. Attorney General Eric Holder. “We allege that executives at the highest levels of these companies—concerned that e-book sellers had reduced prices—worked together to eliminate competition among stores selling e-books, ultimately increasing prices for consumers.”

Apple, Penguin and Macmillan did not immediately respond to requests for comment, and it is unclear why Apple and Macmillan would settle in Europe but not the United States.

In a statement last April, Penguin gave two reasons for not settling with the U.S. Department of Justice. First, the company says it did nothing wrong and the suit contains misstatements. The second takes a long view at the industry. Penguin says: “We believed then, as we do now, that the agency model is the one that offers consumers the prospect of an open and competitive market for e-books. We understood that the shift to agency would be very costly to Penguin and its shareholders in the short-term, but we reasoned that the prevention of a monopoly in the supply of e-books had to be in the best interests, not just of Penguin, but of consumers, authors and booksellers as well.”

Apple is No. 3 in the Internet Retailer Top 500 Guide, Amazon is No. 1 and BarnesandNoble.com Inc. is No. 32.